UAE inflation to drop by half

Inflation in the UAE will drop by half over the five years as more housing comes online, according to a report by the Dubai Chamber of Commerce and Industry (DCCI) released on Sunday.

Inflation, which currently tops 9%, is expected to decline to an average of 5% during the 2008-2012 period, DCCI said, quoting figures from the International Monetary Fund (IMF).
Restraints on fiscal expenditure coupled with a surge in available accommodation are likely to contribute toward downward pressure on inflation, the report said.

A halving in the cost of living would come as welcome reprieve for low- and middle-income residents in the UAE, who have been struggling to cope with the rising cost of goods and commodities in the Emirates over the last year.

However, the report's findings are in stark contrast to forecasts by many economists who believe that demand for affordable housing will continue to outstrip supply over the next few years, pushing costs up even higher.

Inflation, which hit 9.3% in the UAE at the end of 2006, is being driven by a massive surge in demand for low- and medium-cost housing to accommodate the country's rapidly expanding population.

HSBC Holdings, for example, predicts rent prices to surge into the New Year and beyond, citing Abu Dhabi as acutely susceptible to rising costs.
“Given the tightness in the market, we expect still more price and rental appreciation,” HSBC said in a report released in November.

The report also predicts GDP growth will slow down to an average of 7.7% from 2008 through 2012, from 10% over the past five years.

Among other factors, the report attributes the staggering double-digit GDP growth experienced by the Emirates to an outward economic development strategy, favourable business climate and rising oil prices.

The report expects non-oil related investments to sustain the annual growth in the Emirates between 2008 and 2012, with real domestic demand expected to remain relatively strong and investment in infrastructure and private consumption to underpin the economy.
It states that a favourable and attractive business environment will continue to attract foreign funds with investment growth in oil, real estate, tourism, transportation, and manufacturing to lead the way.

The report states that real growth domestic product (GDP) will outpace the consumer price index (CPI) during the period from 2008-2012, with the spread widening from 0.2% in 2008 to over 4% by 2012. Source